Big Pharma Stocks Look Safer, as Wall Street Trembles

By Sarah Rubenstein

Reporters surround a man arriving at Lehman Brothers headquarters in New York this morning. (AP photo)

As of mid-morning, Merck, Bristol-Myers Squibb, Schering-Plough, AstraZeneca, Novartis and Sanofi-Aventis were down about 2% on the New York Stock Exchange. Pfizer, Wyeth, Eli Lilly and GlaxoSmithKline were down about 1%. Johnson & Johnson and Abbott Labs were holding firm.

We checked in with a couple of folks on the Street to ask if the dark days for the financial sector make Big Pharma more inviting now. Shares in the companies aren’t immune to fallout from Lehman Brothers, AIG and Merrill Lynch. But if the economy remains weak for longer than expected, an investment in pharma may look pretty good, if only by comparison.

With so many different financial assets falling in value, fund managers may have to sell other shares to raise cash, he says. That means they may unload pharma shares even absent any specific concern about those companies. So basically, “even if there is really a pretty tangential link between the fundamentals of a drug company and a finance company, a decline in the value of financial assets can lead to a decline in drug stocks,” Krensavage explains.

That said, drugmakers’ big problems — R&D troubles, generic competition — are well known and largely built into their current share prices. Drug companies have taken some financial hits here and there, but their earnings, especially in the short term, are fairly predictable. While prescriptions may fall somewhat in a weak economy, patients tend to continue to take their drugs. Says Deutsche Bank drug analyst Barbara Ryan: “If the weakness in the economy is sustained because of these events, then the relative performance of pharma could be better for longer.”